MSU invited the Governor’s Budget Director to campus to discuss
its request for approval for the
Regents to authorize the design and construction of a Chemistry/Biochemistry
building on the Bozeman campus. In
accordance with 18-2-102(2) (C), MCA, this project requires approval of the
Board of Regents and the consent of the Governor because the cost of the
projects will exceed $150,000. This
project meets the requirements of 18-2-102(2) (C) MCA ast
it is entirely funded with federal F&A revenue and will not result in any
new programs.

Issues raised by Chuck Swysgood:

1.Statute provides for the Governor to approve buildings
financed with federal or private funds if
the construction will not result in new programs. Swysgood
expressed a concern that O&M could be
considered a new program. I would not
support approval outside of legislative process if the plan is to ask for state
support for O&M.

MSU
indicated that it
intends
to use IDCs (F&A) for O&M as well as debt service on the bonds. We are asking for the Governor’s consent to
approve the Board of Regents initiating construction. Neither MSU’s Board
Item nor any letter to the Governor will include a request for
a financial commitment from the state for O&M.

2.Swysgood
Qquestioned what our interpretation is of the
appropriate use of IDCs.

Tom McCoy
indicated 1989 legislature included language in HB2, and MSU has consistently complied with that intent language, using IDC
revenue for strategic investments to grow our research programs (examples: faculty start-up packages, compliance with
federal requirements, support services such as the Animal Resource
Center.) MSU also has
used these funds for
major renovation projects such as AJM Johnson.

Swysgood
pointed out that the language is no longer included in HB2, and that in 1989
the volume of IDCs was significantly less. Montana’s
current context of limited resources causes us to question whether those funds
aren’t more important to upgrade other campus buildings on the academic side.

Dave
Dooley pointed out that MSU uses IDCs for
facilities which house sponsored research, vs. instructional classes. MSU would
not, for example, feel it appropriate to use IDCs to renovate teaching
facilities in Gaines Hall.

Bob
Lashaway noted that sometimes MSU has
projects funded by IDCs that allow it to
leverage the investment to address needs on the instructional side (such as
upgrading the electrical system for a building with research labs, which also
benefits the classroom space.)

3.Swysgood
asked whether these will be revenue bonds, because
the Regents have the authority to issues revenue bonds on revenue-generating
facilities without approval from the Governor?

Craig Roloff indicated
these are revenue bonds, but MSU is
hesitant to categorize this as a revenue-producing facility, as research
facilities are not included in the list in statute. This debt will be part of our overall bond program. Because the coverage ratio is higher than
for other issues, it mightenhance
our overall bond program.

Gamble
commented that we didn’t want to distort the purpose, but wanted to ensure full support.

Craig noted
that MSU
has
worked with both its own and
MUS legal counsels, and has been
assured that the Regents have the authority to approve the issuance of bonds
for this project.

Swysgood asked how MSU can
ensure it
has
adequate IDC revenue to retire this debt and

4.cover
O&M?

McCoy
indicated the annual costs (debt service and O&M) will average about $2
million, and the
campus would plan to take this amount off
the top of recovered IDCs. If there were
a shortfall, MSU
would have to cut into other needs supported by IDCs.

5.Swysgood
noted that MSU has a
significant fund balance; why not use some of that money to reduce the bond
commitment?

Craig
explained the
campus handles a significantamount as a
payablefrom
grantors; the campus incurs the expense
and then bills
the federal government.

Swysgood indicated he would talk with the
Governor about our project, but he couldn’t recommend the project unless the
University would cover O&M. He
indicated if it were up to him, he would rather see us use the money to fix up existing
buildings, but he would talk
with the Governor and let us know the decision.

Issues/questions of other meeting
participants:

Fred Thomas asked about usage in
Gaines, and savings due to current interest rates.

100-120 undergraduate majors and
70 graduate students, plus several thousand students who take chemistry courses
but are in other majors. Approximately
15,000 student credit hours taught.

The financing rate could save us
approximately $100,000/point. MSU would
let the bonds now, all at one time, not spread over time. A delay in obtaining approval on the project
would mean the
campus would miss the 2005 construction
season, which could drive up construction costs.

Tom O’Connell indicated MSU
could begin design, and wait until the next legislative session, and possible
ask for O&M.

Gamble indicated that MSU is willing to cover the O&M at this time, as a part of our
partnership with the state.

Senator Zook indicated that by not
going through the legislature now, the campus takes the risk of not
having legislative support for O&M in the future.

Plan for Obtaining Approval

If the
Regents decide to approve this Board Item, then based on discussions with the
Governor’s representatives and Legislators, MSU would suggest the following language for the “letter
of consent” the Commissioner must send to the Governor:

Dear Governor Martz:

The Board of Regents has approved this project.

A copy of the Board of Regents Item approving this
project is attached.

This project will be funded entirely with F&A
revenue from federal
research grants. This project will not result in any new
programs, and MSU is not seeking any legislative funding for O&M costs at this time.